New South Africa Party Chief Faces Economic Challenge
Investors and CEOs rallied around the African National Congress's new party chief Tuesday, but the union-leader-turned-tycoon will have to balance pressures to reduce South Africa's debt and boost growth with his own party's demands for policies directly supporting the poor, black majority.
Cyril Ramaphosa, the deputy president and one of the country's richest black men, campaigned on the promise of a "New Deal" for the stuttering economy and corruption-plagued government. In a party vote on Monday he beat a rival who -- endorsed by President Jacob Zuma -- called for aggressive redistribution of wealth and attacks on "white monopoly capital."
Investors hope that as the leader of the party that has won an absolute majority in all national elections since the end of apartheid, Mr. Ramaphosa will spur the ANC to cut red tape and step back from demands to expropriate land owned by white farmers.
"Your election presents an opportunity to renew confidence in South Africa, both internally and externally," Mike Brown, the chief executive Nedbank Group Ltd., one of the country's biggest banks, wrote in an open letter to Mr. Ramaphosa.
Banks led the positive market reaction to Mr. Ramaphosa's election as ANC leader, and while the rand halted its rally, the currency has still strengthened over the past month as a Ramaphosa victory looked increasingly likely.
Yet Mr. Ramaphosa faces obstacles in fulfilling his promises to lift South Africa's economic growth to 3% in 2018 and 5% by 2023 from a lackluster 1.3% estimated for this year, and create a million new jobs to bring down a 27.7% unemployment rate.
Chief among his challenges is Mr. Zuma, whose term in office continues into 2019. Growth has slowed in recent years under Mr. Zuma, and the president has clashed with business leaders over some of his policies, including his push for a new mining charter that requires black investors to permanently own at least 30% of a company's stock.
The election of three Zuma allies into the ANC's six-person executive, which includes Mr. Ramaphosa, will reduce the new party leader's influence over cabinet selection and government policies.
That will also make it harder for him to deliver on another key promise: fixing state-owned enterprises, where corruption and bad management have led to expensive government bailouts.
At the same time Mr. Ramaphosa will have to make concessions to his own left-wing backers, including the South African Communist Party and the Congress of South African Trade Unions, which want to make it more difficult for companies to fire workers and support bigger black-ownership requirements for corporations active in the country.
"He certainly won't be pushing a neoliberal agenda as [Thabo] Mbeki did, " said Darias Jonker, Africa director at consultancy Eurasia Group, referring to the former president who oversaw a period of strong economic growth, but was criticized for failing to sufficiently improve the lives of poor black South Africans.
Mr. Ramaphosa will be under pressure to serve this constituency ahead of 2019 national elections, with opposition parties stronger than at any point since apartheid ended in 1994.
In what could be a challenge to Mr. Ramaphosa's economic agenda, Mr. Zuma on Saturday offered free higher education to poor and working-class South Africans, categories that cover around 90% of households.
Doing so would cost the government the equivalent of around 1% of gross domestic product a year to begin with and potentially much more in the future, according to Moody's Investors Service. Failing to do so could trigger a repeat of violent protests on university campuses and cost the ANC the youth vote.
Moody's, the only one of the top three ratings firms that still considers South Africa's debt "investment grade," said it is looking for the government to offer a clear strategy for reducing the deficit and curbing government debt when it presents a new budget in February. South Africa projects its deficit to reach 4.3% of GDP in the current fiscal year; government debt was 51.7% of GDP in 2016.
Should Moody's follow Fitch Ratings and S&P Global Ratings in downgrading South Africa's debt to "junk," the South African Reserve Bank expects a selloff of as much as $10 billion of the country's bonds. That in turn would pressure the rand and make it hard for the Reserve Bank to cut interest rates from the current 6.75%.
"Ramaphosa will not provide a magic bullet to solve the country's economic problems," said Ben Payton, head of Africa Research at risk consultancy Verisk Maplecroft. "But his election does at least signal that the worst possible outcome -- the open-ended continuation of the Zuma-era -- will be avoided."
Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com
(END) Dow Jones Newswires
December 19, 2017 16:20 ET (21:20 GMT)